Monetary policy decision in December which will mark the end of 2025
On December 10, 2025, the Federal Open Market Committee (FOMC) of US Federal Reserve cut its benchmark rate by 25 basis points, placing federal funds between 3.50% and 3.75%. This reduction represents the third consecutive of the year and places rates at their lowest level in almost three years. The vote showed an internal division within the body, with several members favoring maintaining or even cutting rates more aggressively.
The move was prompted by signs of weakness in the labor market and downside risks to the economy, even though inflation remains above the official 2% target. Some policymakers have raised the possibility of a pause in further cuts until clearer economic data is available.
Immediate impact on financial markets
Following this announcement, the main American stock indices recorded sharp increases. He S&P500 grew by around 0.7% and the Dow Jones Industrial Average more than 1%, driven by investor optimism over a cheaper credit environment and expectations of greater liquidity by 2026.
Bond and precious metals markets also reacted: long-term bond yields fell while gold and other traditional safe havens gained appeal, reflecting the classic bounce in the face of looser policies.
Reaction to risk assets and cryptocurrencies
Cryptocurrencies like bitcoin saw mixed movements following the decision. Although a low rate environment generally favors risky assets, bitcoin’s response has been less clear than that of other markets, suggesting a dynamic more linked to the general appetite for risk and the perception of the cryptocurrency as a technological asset rather than a pure safe haven.
This is consistent with recent analysis showing how bitcoin behaves more correlated to tech stocks than traditional assets like gold in expansionary monetary environments.
What does this reduction mean for 2026?
Although the Fed responded to market expectations by lowering rates, its members stressed the great economic uncertainty and the need to observe future indicators before deciding on further adjustments. The statement following the meeting stressed that risks to employment and inflation continue to guide caution in monetary policy.
With inflation still above target and the global economy facing geopolitical and growth tensions, the trajectory of rates in 2026 will largely depend on developments in economic data and market perceptions of future financial risks.
Signals from analysts on future monetary policy
- The December reduction could be the last before a possible pause, according to several economists.
- Some markets are forecasting at least one or two more cuts in 2026 if data shows further economic weakening.
- The Fed’s internal division suggests that policymakers carefully evaluate the balance between growth and price stability.
Summary of the global economic context
Global markets have adjusted their expectations throughout 2025 based on the actions of major central banks. In Europe, unlike the Fed, the European Central Bank has shown signs of ending its rate-cutting cycle, reflecting differences in economic outlooks across regions.
This context highlights how monetary policy coordination and divergence influence capital flows, exchange rates and financial asset valuations around the world.
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